In my Daily Journal today, I wrote about two seemingly contradictory statements: that North Carolina?s pension plan for teachers and state employees compares well to similar plans in other states, and that North Carolina?s pension plan has major problems. There?s no contradiction if you remember how poorly most state pension plans are run:
A new Heartland Institute paper (not yet online) ranks all 50 state pension systems
according to six criteria: employee contribution, choice, taxable
benefits, vesting period, earning basis, and fund solvency. ?The first
five variables concern the kinds of promises states make to
public-sector workers,? wrote the report?s co-authors, Eli Lehrer and
Steve Stanek. ?The final variable, fund solvency, concerns the ability
of states to keep the promises they make.?After adding or subtracting points for each of the variables, Lehrer and
Stanek then assigned letter grades to each state based on variation.
State pensions with a score more than a standard deviation higher than
the national mean got an A. Those below the mean by more than 1.5
standard deviations got an F.So here?s the good news: North Carolina was only of only eight states to
get an A for its pension system. In fact, our state ranked third in the
nation. Within our region, only Florida (2nd) ranked higher. Next-door
neighbor South Carolina got an F.
I left out another piece of evidence that just crossed my desk (again) this morning. The Manhattan Institute published a paper last month examining the solvency of all state pension plans after adjusting the discount rate and market valuation to reality. North Carolina’s plan is rated at 99 percent solvent before the adjustments and only 79 percent solvent afterwards.
Once more, that’s troubling. State Treasurer Janet Cowell and the General Assembly need to start formulating a long-term strategy to bring the pension plan into balance under more realistic financial scenarios. However, North Carolina still looks good by comparison: that 79 percent solvency ratio is exceeded only by the District of Columbia’s (84 percent).
